Blockade deepens car dealer problems: Ind-Ra
NEW DELHI: National Blockade Has Deepened Auto Problems dealers As the coronavirus the pandemic that paralyzes most economic and commercial activities will have a negative impact demand for automobiles, according to India Ratings and Research (Ind-Ra).
The Supreme Court's order on March 27 to allow automobile dealers , except in the national capital Region, to sell 10 percent of unsold Bharat Stage IV (BS-IV) Inventory within 10 days after the nation-wide lockdown ends on April 14, 2020 comes as a little respite to an already struggling automobile dealers hip, it said.
The ratings agency said some original equipment manufacturers (OEMs) have announced support to auto dealers either by taking the ownership of unsold stock, or by requesting their Inventory financing partners for an extension of the moratorium to their dealers due to the lockdown.
OEMs could also compensate their dealers for the unsold stock to a certain extent, which was also seen during the goods and services tax implementation, it said in a statement.
"However, given that the sluggish demand in the industry over the last 12 months, Ind-Ra opines that the current measures might not be adequate to cover the losses of the dealers ," it added.
Furthermore, the three-month moratorium on the instalments of all term loans is likely to trouble most dealers , who usually sit on short-term borrowings rather than term loans, as automobile dealers ' operations are working capital intensive. However, a large part of the debt is related to Inventory funding, which is also likely to reduce due to lower sales, Ind-Ra said.
The agency further said it "expects the COVID-19 spread and the resultant lockdown, crippling most economic and commercial activities, will negatively impact the demand for automobiles".
Even after the lockdown ends on April 14, 2020, consumers would be wary to come out for a discretionary purchase and hence a 10-day timeline might not be sufficient to sell the Inventory , it said.
Ind-Ra believes that liquidating the unsold BS-IV stock within 10 days amid a desperately low buyer sentiment due to the COVID-19 pandemic would call for heavy discounts and still might not be adequate to alleviate the demand woes of auto dealers and could impact their profitability.
Furthermore, Ind-Ra said, if the shutdown is prolonged for an extended period, it could generate weaker consumer sentiments amid lower incomes in various sections due to declining industrial production, reduced transportation and a challenging overall economic environment. . Therefore, there is no likelihood that the sale of BS-VI vehicles will recover soon.